The November issue of ProNetwork News focuses on explaining the benefits of arbitration. The author, Melissa Dewey Brumback, is a litigation partner at Ragsdale Liggett PLLC of Raleigh, North Carolina. The bulk of her practice consists of representing architects and engineers in construction-related claims including construction administration and management, plan defects, testing failure claims and delay claims.

The following is an excerpt from Private Arbitration: A better way to resolve construction disputes?:

Architects and Engineers are very familiar with the concept of arbitration of construction disputes. The three main standard sets of form documents – AIA, EJCDC, and ConsensusDOCS, – all contemplate resolving disputes outside of a courtroom. In the past, the default tribunal was arbitration, and, in the case of AIA documents, arbitration through the American Arbitration Association (AAA).

AAA arbitration is, by and large, successful. The tribunal understands that construction disputes are not like typical breach of contract cases, and that individuals with specialized training and knowledge will likely better understand industry norms and terminology. Leaving such concepts as Requests for Information, Construction Change Orders, Construction Change Directives, Construction Administration v. Construction Management, Acceleration, Critical Path and other industry terms to a lay jury is often deemed unwise. By utilizing AAA arbitration, the parties can instead get a panel of industry experts to hear their case and, presumably, the matter can be dispensed with much more quickly and cheaply than traditional courtroom litigation.

However, if you have ever had a chance to participate in a full AAA arbitration, you know that its benefits come with costs: hefty filing fees, inflexible coordinators, uncertain evidence rules and more chance of a panel “splitting the baby.”

What is the best venue, then, for construction disputes? That depends on the size of your project, the nature of the dispute and the jurisdiction you are in. However, one option that is being used more and more is private arbitration.

Private arbitration can either be negotiated up front, during contract drafting, or after a dispute has arisen. In fact, I have even gotten opposing counsel to agree to private arbitration after they have filed the lawsuit.

Click here for the full-length PDF version of this article.

ProNetwork News is the latest value-added resource produced by a/e ProNet. Each monthly edition includes an informative, timely article relevant to the design industry and authored by an industry expert. Contact your local a/e ProNet broker for early access to these excellent newsletters.

The Cost of Perfection

Nobody’s perfect, yet perfection is always desirable, especially on a design project. Just for a second, let’s imagine that perfect world:

Deadlines met. Costs at or under budget. Environmentally-friendly materials preferred by all parties. Nobody injured, no property damaged. Zero miscommunication.

Sounds, well, perfect, doesn’t it?

Unfortunately, there is a downside to trying to attain a perfect project. As it turns out, perfection is unrealistic enough to guarantee disappointment, which will almost inevitably cause rifts between members of the design team. An architect or engineer can better prepare to avoid this scenario by managing the project owner’s expectations early on, refocusing the energy of the team on achieving success rather than perfection.

The following is an excerpt from our ProNet Practice Note entitled The Cost of Perfection: A Design Professional’s Perspective:

Owners that involve themselves in a collaborative and cooperative team approach with the design professional (and construction contractors when identified) are most likely to accomplish successful projects. This team approach involves the honest exchange of ideas, information and problem solving efforts that minimize costs and improve results. However, there is a trend with some owners to define a successful project as one without any risk to the owner. This “risk free” approach is anything but risk free; in fact it may be just the opposite.

Each project is different, but the experienced design professionals on a given project have been through the basic process many times. The architect knows her role as designer. The engineer understands which skill set he brings to the table. This is not necessarily true of the project owner; he or she may come to the same table with some weighty misconceptions. Ironically, these misconceptions may be fueled by the owner’s knowledge that the design professionals have successfully completed so many projects before.

The nature of the design process is such that each project is unique – the first and only one exactly like it. This can be contrasted to a manufactured product that is perfected over time. Consumers buy products expecting perfection or make a trade-off to a lower priced option. Take, for example, a new car, which will be reproduced thousands of times. If you find a defect, you take it back to be corrected under warranty. This is because a manufactured product can be “perfected” through product testing, design improvements and manufacturing process improvements during the life of the production line for that particular model and its predecessors. While the engineering, design and construction community continues to improve its methodologies and learn from the past each project is different with its own unique challenges.

This Practice Note goes on to point out that thinking of the engineering and design process as a product has lead to some common misconceptions:

  • Contract documents are 100% complete, free of any defects and contain everything needed for the construction contractor to do the job.
  • No change orders are to be expected.
  • No contingency budgets are necessary.
  • Any construction change order probably stems from a design fault.
  • Once there is a construction contract, the owner only has to pay for changes in the work that the owner initiates.
  • All extra costs are damages regardless of their origin (e.g. project improvements or changes at the request of the owner should be borne by the owner).
  • Design professionals are responsible to see that the construction contractor builds it right.
  • Professional liability insurance is a no-fault policy.
  • Design documents or construction contract documents are “guaranteed” or come with a “warranty” to be free from defects and fit for the intended use.

To read more and pick up some real-life risk management strategies to aid in this tricky process, please visit our website. The free, full-length PDF version of this Practice Note is available.

Currently, there are a record number of insurance companies in the market that offer Professional Liability (E&O) policies for design professionals. This number fluctuates almost annually based on company interest, company loss ratios, and other dry, tedious factors which you probably don’t want to care about. And that’s okay. It is your insurance broker’s job to care about your insurance options.

So, who are the top Professional Liability insurance providers for architects and engineers?

a/e ProNet is a network of independent insurance brokers. This means we are not restricted by quotas and obligations dictated by any one insurance company. We are, therefore, free to represent the best interests of our clients and we do that by staying up to date on the Professional Liability programs available in your state.

Our organization is sponsored by several insurance companies with top-tier Professional Liability programs. The following is a list of our sponsors with links to the webpages which detail their respective Professional Liability insurance programs.

RLI Design Professionals
Travelers
Navigators Pro
Victor O. Schinnerer
The Hanover Insurance Group
Liberty International Underwriters
Beazley
Catlin
OneBeacon Professional Insurance
AllRisks
HCC

(Keep in mind that this is not an exhaustive list. There are more Professional Liability insurance programs out there, and a/e ProNet brokers work with many of those, as well.)

Each Professional Liability program is unique. Here are a few of the factors that vary between them:

  • Coverage modifying endorsements
  • Pricing models
  • Preferred disciplines (architects, civil engineers, geotechs, etc.)
  • Application requirements
  • Consideration of loss history (past claims)
  • Limits/Deductibles offered
  • Multi-year policy availability
  • Billing thresholds
  • Premium credits

If/when you have questions about which of these professional liability insurance providers would best meet your needs, contact your local a/e ProNet broker. We’re here to answer your questions.

And why should an architect or engineer purchase Errors & Omissions insurance?

Also known as Professional Liability insurance or Malpractice insurance, an Errors & Omissions (E&O) insurance policy provides coverage to defend and indemnify a professional firm against claims alleging negligent acts, errors or omissions in the performance of professional services.

That’s a mouthful, but it sounds more complex than it is. Let’s break it down.

There are several reasons an architecture or engineering firm should purchase Professional Liability insurance:

Defense: Any project can give rise to a claim. Even if your firm employs an excellent risk management strategy, it is vulnerable to being named in a lawsuit. In that case, you’ll need to defend your firm against allegations of negligence. The cost of that defense can mount fast, even if you’re correct and your firm wasn’t in the wrong. A Professional Liability policy covers the cost of defense, along with the indemnity, as described below. (If you have the option to purchase a First Dollar Defense endorsement from your insurance company, you won’t be required to pay your deductible unless the insurance company ultimately pays a settlement payment on your behalf.)

Indemnity: In the event that your firm is found to have been negligent, and that the firm’s negligence gave rise to the claim, your Professional Liability policy will step in and cover your firm for the damages you’re legally obligated to pay, up to the policy limit. Note that, in most cases, defense costs erode the policy limit. Having adequate limits to cover both defense and indemnity is important.

Of course, another reason an architect or engineer should purchase Professional Liability insurance is that most project owners now require this coverage. If you’re in such a position for the first time, you probably have questions about the appropriate limits, deductibles, endorsements, etc., for your firm. The a/e ProNet website offers extensive resources prepared to answer your questions. As well, we can put you in contact with your local a/e ProNet broker. Our members are Professional Liability specialists with extensive experience working with design professionals. They are eager to help you navigate the process of purchasing Professional Liability coverage and appropriately protecting your firm.

Green Projects

By now, most architects and engineers know that green projects are special. They require close attention to a different set of details, further education regarding materials and relevant research, and possibly an enhanced caution when it comes to contracts. You know this. But does your insurance broker?

The following is an excerpt from a newsletter authored by a/e ProNet member Meade Collinsworth of Collinsworth, Alter, Fowler & French, LLC in Miami Lakes, Florida.

“The more I read and research this topic, the more concerned I become with the potential for uninsured claims that can arise out of these projects. In fact, a “green project” is not just another project! I think the very first place that you should begin to review the exposures that arise from green projects would be your client contracts. It is absolutely essential that all contractors review their contracts prior to signing them in order to understand their rights and responsibilities in order to mitigate misunderstandings. This is the reason I am going to concentrate on the contract review process in this articles as I believe this will assist you in meeting your due diligence needs on green projects.”

The full-length PDF version of the article can be found at our website, here.

Cleaning House: Our New Homepage!

Now it’s easier than ever to find what you want on the ProNet website. (Better yet, it’s easier to find what you need!)

Since the re-launch of our website in 2010, a/e ProNet has continually sought to find a way to clearly display its vast set of resources to the design community. We have the risk management materials, the Guest Essays penned by experts in the field, insurance advice for architects and engineers, newsletters, and information on best practices. It’s all there.

Stop by and pay us a visit. And if you have any questions about how you can access additional services, contact your local a/e ProNet member. We’re here to help.